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The Blue-State Tax Blues

The political lineup for and against the controversial tax deal evokes great bemusement. Once again, Republicans representing the poorer conservative states are pounding the table for the lower taxes that benefit the richer, liberal ones. Once again, Democrats representing parts of the country where a $250,000 household income is cushy but not princely are enraged that families making such amounts may have their Bush-era tax cuts extended.

Now, there's a lot wrong with the deal President Obama made with Republican lawmakers. Cutting payroll taxes (endorsed by some liberals oddly enough) is a frontal assault on the integrity of Social Security and Medicare. Extending Bush-era tax cuts for the rich adds to deficits while doing little to help the weak economy.

The problem comes in determining who is rich. My inbox groans with complaints from readers that they make $250,000 and feel in no way rich. Two responses to that. One is a reminder that the U.S. median income for a married-couple household is about $73,000. For households headed by an unmarried woman, the median is only $30,000. And for those headed by an unmarried male, it's $44,000. You making three or more times the median income should hold your tears.

But if you live in one of the expensive Blue States, you may have some reason to feel blue. The federal tax code treats a $250,000 income in San Francisco, where houses sell for a median price of $628,000, the same as a $250,000 income in Houston, where the median is $79,000. If you're looking to buy in a fancy neighborhood, the current average listing price in Frisco's Russian Hill (never mind Pacific Heights) is $1,400,000. In Houston's Great Uptown neighborhood, it's $635,000. Meanwhile, the average listing price in Omaha's most expensive area, Bent Creek, is $405,000.

The point is, a $250,000 income translates into entirely different lifestyles depending on where you live. That's also why the idea by New York Sen. Chuck Schumer and other Democrats to draw the income line at $1,000,000 was both fairer and made more political sense. It would have been hard to argue against letting taxes rise on those making 7-figures, no matter where they are. But it would have also separated the truly rich from the teacher-lawyer combos living where $250,000 makes one merely upper middle class.

Which brings us to the agreement on estate taxes. Many liberals were furious that Obama went along with the Republican proposal to tax estates at 35 percent after a $5 million exemption. The Democratic leadership preferred a $3.5 million exemption with a top rate of 45 percent on the rest. The Republicans were actually doing the Blue States a favor.

A modest house in much of Connecticut's Fairfield County can easily cost $1 million. If the householders are a professional couple that has also saved over the years, their family wealth could surpass $3.5 million without their having lived like tycoons. And remember that they've been paying steeper taxes over the years by virtue of their generally higher Blue State incomes.

How interesting that Arkansas Sen. Blanche Lincoln, a Democrat who lost her bid for re-election, was hotly supportive of the Republican's more generous estate-tax proposal. Her state's median income, about $47,000, is the lowest after Mississippi's. By contrast, the median income in New Jersey is $83,000.

Again, let's be clear. The rich and everyone else will have to pay more taxes to stop spiraling deficits and rebuild America. Spending cuts can't do it alone. But Blue State liberals should be mindful that they and their neighbors are already paying more than their share -- and that money not sent to Washington stays at home.

COPYRIGHT 2010 THE PROVIDENCE JOURNAL CO.

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Views expressed in this column are those of the author, not those of Rasmussen Reports.

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